How Homeowners Can Counter Foreclosure with Alternative Solutions

A home is an investment that is subject to many variables. Sometimes, the economy and an individual’s employment status can put this investment in jeopardy. When that happens, there is a very real risk that creditors will foreclose on the home. However, there are options that can help homeowners avoid foreclosure.

Foreclosure alternatives offer a solution that works for both the borrowers and the lender. In February of 2016, 1 in 565 homes in Cook County, and 1 in 521 homes in McHenry County were foreclosed upon. For homeowners in these counties facing foreclosure, solutions that should be explored include:

Loan Modification. This can reduce the monthly payment and interest rate. For example, the Home Affordable Modification Program uses a two tier system that adjusts a homeowners payment based on their debt-to-income ratio. However, borrowers should be aware that loan modification often extends the length of the loan and the amount they will pay over the life of the loan.

Short Sale. In a short sale, the creditors allow the homeowner to sell the property for less than its value in order to satisfy the liens against it. Creditors will allow a short sale if the owner can prove financial hardship exists. Financial hardship can be due to unemployment, reduced income, divorce, bankruptcy, medical expenses, etc. Borrowers will also allow a short sale if there is not enough equity within the home to satisfy the mortgage debt after the sale is completed.

Mortgage Forbearance Agreement. This short-term solution is an agreement between homeowners and the lenders that makes it possible for homeowners to weather temporary financial storms. It gives homeowners the opportunity to get current on their mortgage over a specified period of time. A forbearance will either reduce or suspend payments on the loan for a specified period of time. When the forbearance period ends, the borrower must get current on missed principal, interest, taxes, and insurance payments.

Deed in Lieu of Foreclosure. This deed instrument transfers ownership of real property to the lender. It immediately releases a borrower from any responsibility or debt to the property.

When foreclosure is on the table, it is best to consult with a Chicago area real estate attorney to consider all the options before foreclosure proceedings commence. There are alternatives available that can benefit both borrowers and lenders. These alternatives can make it possible for homeowners to protect both their credit and their property investment.